Consequences of Towns Fighting States Over Natural Gas

A new chapter in the ongoing fight over natural gas development comes in the form of recent attempts of towns to claim oversight control over the process. In New York, this exercise of municipal control has manifested itself in the form of prohibitive local bans and moratoria. In Pennsylvania, seven towns are suing the state, claiming a right to ban natural gas development in contravention of the state’s recently enacted regulatory overhaul bill.

This new strategy employed by opponents of natural gas development presents unanticipated challenges for consumers, businesses, and state and local governments alike.

For potential investors and operators seeking to harness natural gas resources, local bans and ordinances mean a myriad of differing and often contradictory requirements. Issues in local legislation can ultimately make development of a coherent energy exploration plan within a single state very difficult. By the same token, those opposed to drilling are delighted to place local governments in the unenviable role of weighing complex policy and legal decisions, a task traditionally left to state agencies.

Those opposed to shale development, like those of the Marcellus and Utica Shales, are savvy, and this most recent move to place decision making authority in the hands of municipal governments is purposeful. By bringing the fight to local towns and communities, the anti-development activists are hoping to achieve what they have been unable to do at the national and state levels—thwart natural gas development. The string of EPA reversals at the national level show many of the alleged ills bemoaned by development oppositionists have been revealed to be overblown. But that’s not to say that drilling and fracking should be undertaken with reckless abandon—quite the contrary. Uniform and robust statewide regulation of the industry must be clearly articulated so that companies can be held to a standard which allows drilling and yet manages risk in a prudent manner.

While the strategy of bringing the natural gas debate to local communities may seem novel, attempts to stir up fear at the local level are not new. Persuading small local governments to weigh into the natural gas fray is simply the latest reincarnation of the Not in My Backyard strategy that is as old as politics itself.

Consider the subject of electrical transmission. Back in 2002, a debate erupted in Colorado over a proposed power line between Telluride and Nucla. While is was necessary to ensure reliable, affordable power for poorer rural communities in the southwestern region of the state, Hollywood stars and other elite groups living in Telluride attempted to block the project entirely, or at least effectuate a requirement the lines run underground—a move which would have quintupled the cost that would ultimately be borne by all energy consumers. Ultimately, the state deferred the issue to the authority of its Public Utility Commission, concluding that the agency was better positioned than individual localities to take a broader view and make a policy decision in the best interest of the entire region, not just a single community.

More recently, local attempts to ban the transportation of certain commodities by rail in D.C. and Midlothian, Texas, have likewise failed. Whether it is rail, power lines, or natural gas, our economy depends upon regulatory certainty and uniformity. Just as power lines are not feasible without state control, natural gas development is likewise hindered by micro regulation at the local level. And it is easy to see how a sitting decision in one or two localities can negatively impact development across the broader region.

Disparate bans and regulations across any state would force potential investors and operators to navigate a complex web of conflicting rules across potentially thousands of municipal governments. No short order, and certainly not an inexpensive one, either. The costs associated with identifying, responding, and conforming to thousands of different regulations within a single state alone are extremely prohibitive to economical natural gas development. In hopes of fueling this kind of confusion and its deleterious effect, opponents have bypassed state capitals on their way to the local city hall in order to make development as unattractive as possible.

The consequences of such patchwork legislation cannot be any clearer or more devastating. Rather than take on these substantial challenges in states with local patchworks, companies will simply seek a more favorable climate to do business in states with a consistent set of rules. As such, local bans could ultimately translate to a loss of substantial jobs and countless associated economic, tax, and business opportunities.

The opportunity costs at play here do not just involve our economy; it is an issue of safety as well. In the wake of the 2008 financial collapse, local governments continue to remain cash-strapped. Even in Harrisburg, the capital of Pennsylvania, resources are scarce to say the least, nearly four years after the financial collapse. In fact, Harrisburg remains so mired in debt (to the tune of $317 million) that Governor Corbett has essentially been forced to take over financial control of the city. Municipalities do not have adequate resources to thoroughly consider all of the issues related to natural gas development, including safety considerations, legal implications, disclosure requirements and oversight. Many towns are struggling to find the funds to support their local police forces, much less put experts in hydrogeology and mineral extraction on the payroll.

State agencies, on the other hand, are much better equipped to evaluate the issue of natural gas development. In Pennsylvania and Ohio, for example, state agencies have led the way in overseeing new regulatory overhauls. They are attempting to clearly define the role of municipal governments and their ability to pass zoning rules for operators, putting these states at the forefront of development regulation. Even New York has made inroads on that track, having spent nearly four years now crafting its draft Supplemental Generic Environmental Impact Statement under the leadership of the Department of Environmental Conservation (DEC).